EUR/USD update (12th May 2010, 19:00)

Early in the European trading day the euro was buoyed by positive economic announcements and promises that Spain would slash debt.

However, as we approach midday in the US, it appears that investors may not believe everything they have heard. Flash GDP for the euro area (16) showed an improved growth rate of 0.2% (thank you, Germany!) and industrial production for the same region came in better than expected at 1.3%. Also lending some early support for the continental currency were details from Spain indicating the implementation of tough austerity measures designed to reduce the ballooning public deficit. The market didn’t seem to hold a great deal of faith in either of these items though, as the euro has been selling off again. While strong austerity measures in Spain are welcome, with an unemployment rate already over 20% and an economy that is barely moving, most question the ability of Spain to meet their projections. The concern still lies with the stability of the euro area. The debt problem has been papered over temporarily, but most conclude that it will re-emerge if the underlying issues are not dealt with.